Introduction
The first stage in any restructuring by way of a scheme of arrangement in the
Recently, the first stage was considered in the context of a restructuring of a Chinese property developer that focuses on the development and sale of residential and commercial properties (In the matter of
The Decision
In
- The Court's role at this stage is not to consider the fairness or merits of the scheme. It may review its terms to ensure that there are no manifest deficiencies, but its role is not to approve the scheme terms.
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Unless there are any "obvious roadblock[s]" or "showstopper[s]" that would unquestionably lead the Court to refuse eventual sanction of the scheme (assuming the requisite majorities are satisfied), the Court would order scheme meetings be convened: the Court is concerned with ensuring the creditors (and members, as the case may be) are afforded the opportunity to consider and assess the scheme. On its facts, the proposed scheme was conditional on all schemes in the
Cayman Islands ,Hong Kong and theBritish Virgin Islands being duly sanctioned by their respective courts. There was nothing to suggest that the scheme proposed in theCayman Islands would not have international effectiveness in the relevant jurisdictions, or that it would not be recognised internationally, so as to amount to there being a roadblock. - Class composition is a key consideration: differences in rights (distinct from interests) do not necessarily fracture a class and unnecessary class proliferation should be avoided. The relevant comparator must be identified in ascertaining if the rights of the creditors (or members, as the case may be) are not so dissimilar as to make it impossible for them to consult together with a view to their common interests. On its facts, the creditors who held security were no different to those that did not because the relevant comparator was a liquidation scenario where the security would be rendered worthless.
- Depending on the specific terms of the scheme, certain fees payable, such as work fees or advisor fees, do not fracture a class.
Closing comments
Whilst the general principles applicable at the convening stage are uncontroversial, their application and the consequent success of any application to convene scheme meetings very much turns on the specific facts and terms of the scheme proposed. Having regard to the practical utility of a Cayman scheme of arrangement, and the reported instances of distressed enterprises, we anticipate that there will be further deployments of schemes in the
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
Suites 3610-13
Central
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